Internet users in Hull risk having their connection cut if they illegally share files, under a controversial "three strikes and out policy" operated by the only internet service provider in the area.

Karoo, the north-eastern city's only ISP, serving 90,000 customers, has in recent years, with little national publicity, been cutting users' internet connection immediately and without warning if they were found to be in breach of copyright.

It was forced to relax its stance after growing criticism from digital rights groups and customers.

Karoo will now provide customers with three written warnings before temporarily suspending the internet connections of illegal filesharers, after the company admitted it was "exceeding the expectations of copyright owners" .

The policy remains controversial and significantly harsher than other UK ISP providers, which have been reluctant to crack down on illegal filesharers and only recently agreed to send warning letters to persistent filesharers.

The recent Digital Britain report suggested other actions against illegal filesharers, such as having their internet connection slowed, but stopped a long way short of threatening to disconnect online illegal filesharers.

Yesterday the company said it had always taken a firm line on the "alleged abuse" of its internet connections and had a duty to act if it was informed by record labels, or the police about infringing copyright.

Nick Thompson, director of consumer and publishing services at Karoo, said it would in future issue three written warning before cutting its customers internet connection. "It is evident that we have been exceeding the expectations of copyright owners, the media and internet users," he said. "So, we have changed our policy to move in more line with the industry standard approach, whilst still taking the issues of copyright infringement and illegal internet activity seriously."

Previously, for a number of years customers were sent a letter requiring them to accept culpability and to promise not to share files again. The first reconnection was free, but if users continued to fileshare they had to pay £30 for each subsequent reinstallation.

Karoo's policy caused uproar among its clients, who complained that they could not vote with their feet by choosing another internet service provider.

Steve Thornhill, from west Hull, said he had been wrongfully cut off for "illegally downloading" because his computer had been infected by a virus.

"I am absolutely furious about this ... There is no warning, they just sever your connection, which is unacceptable in my view," he wrote on the This is Hull and East Riding website.

Other comments suggest that cutting people's internet connections may not prevent more tech-savvy users from illegally downloading. One anonymous user wrote: "I got cut off last year twice or downloading films, games and music through bit-torrents, what did I do? Switched to rapidshare! Come on kar-roo, try harder, I like a challenge."

Executive director Jim Killock said: "Karoo's policy still has major concerns around presuming guilt, allowing innocent people to clear their name, and allowing due process to take place. They are still threatening to cut users from the internet without testing the evidence. This is especially concerning given their monopoly position."

He added: "Even prisoners get to use the internet. For many people, web access is not optional in the modern world."